Bill Text: IA SF2407 | 2019-2020 | 88th General Assembly | Introduced

Iowa Senate Bill 2407 (Prior Session Legislation)

Introduced

Bill Title: A bill for an act relating to the child and dependent care credit and the early childhood development credit available against the individual income tax, and including effective date and retroactive applicability provisions.

Spectrum: Partisan Bill (Democrat 18-0)

Status: (Introduced - Dead) 2020-03-11 - Subcommittee: Brown, Edler, and Jochum. S.J. 607. [SF2407 Detail]

Download: Iowa-2019-SF2407-Introduced.html

Senate File 2407 - Introduced SENATE FILE 2407 BY PETERSEN , GIDDENS , WAHLS , MATHIS , RAGAN , BOULTON , JOCHUM , CELSI , J. SMITH , KINNEY , DOTZLER , R. TAYLOR , HOGG , BISIGNANO , LYKAM , QUIRMBACH , BOLKCOM , and T. TAYLOR A BILL FOR An Act relating to the child and dependent care credit and the 1 early childhood development credit available against the 2 individual income tax, and including effective date and 3 retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5738XS (4) 88 jm/jh

S.F. 2407 Section 1. Section 422.12C, subsection 1, Code 2020, is 1 amended to read as follows: 2 1. The taxes imposed under this division , less the amounts 3 of nonrefundable credits allowed under this division , shall 4 be reduced by a child and dependent care credit equal to the 5 following percentages of the federal child and dependent care 6 credit provided in section 21 of the Internal Revenue Code, 7 without regard to whether or not the federal credit was limited 8 by the taxpayer’s federal tax liability: 9 a. For a taxpayer with net income of less than ten 10 twenty-five thousand dollars, seventy-five percent. 11 b. For a taxpayer with net income of ten twenty-five 12 thousand dollars or more but less than twenty thirty-five 13 thousand dollars, sixty-five percent. 14 c. For a taxpayer with net income of twenty thirty-five 15 thousand dollars or more but less than twenty-five forty 16 thousand dollars, fifty-five percent. 17 d. For a taxpayer with net income of twenty-five forty 18 thousand dollars or more but less than thirty-five fifty 19 thousand dollars, fifty percent. 20 e. For a taxpayer with net income of thirty-five fifty 21 thousand dollars or more but less than forty sixty thousand 22 dollars, forty percent. 23 f. For a taxpayer with net income of forty sixty thousand 24 dollars or more but less than forty-five sixty-five thousand 25 dollars, thirty percent. 26 g. For a taxpayer with net income of forty-five sixty-five 27 thousand dollars or more, zero percent. 28 Sec. 2. Section 422.12C, subsection 2, paragraph a, Code 29 2020, is amended to read as follows: 30 a. The taxes imposed under this division , less the amounts 31 of nonrefundable credits allowed under this division , may be 32 reduced by an early childhood development tax credit equal to 33 twenty-five percent of the first one thousand dollars which 34 the taxpayer has paid to others for each dependent, as defined 35 -1- LSB 5738XS (4) 88 jm/jh 1/ 4

S.F. 2407 in the Internal Revenue Code, ages three through five for 1 early childhood development expenses. In determining the 2 amount of early childhood development expenses for the tax year 3 beginning in the 2006 calendar year only, such expenses paid 4 during November and December of the previous tax year shall 5 be considered paid in the tax year for which the tax credit 6 is claimed. This credit is available to a taxpayer whose net 7 income is less than forty-five sixty-five thousand dollars. If 8 the early childhood development tax credit is claimed for a tax 9 year, the taxpayer and the taxpayer’s spouse shall not claim 10 the child and dependent care credit under subsection 1 . 11 Sec. 3. Section 422.12C, Code 2020, is amended by adding the 12 following new subsection: 13 NEW SUBSECTION . 5. Upon determination of the latest 14 cumulative inflation factor, the director shall multiply 15 each net income level set forth in subsection 1 or 2 by this 16 cumulative inflation factor, shall round off the resulting 17 product to the nearest one dollar, and shall incorporate the 18 result into the net income levels in subsection 1 or 2 for each 19 tax year beginning on or after January 1, 2020. 20 Sec. 4. EFFECTIVE DATE. This Act, being deemed of immediate 21 importance, takes effect upon enactment. 22 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies 23 retroactively to tax years beginning on or after January 1, 24 2020. 25 EXPLANATION 26 The inclusion of this explanation does not constitute agreement with 27 the explanation’s substance by the members of the general assembly. 28 This bill increases the Iowa net income threshold levels 29 for purposes of calculating the Iowa child and dependent 30 child care tax credit and the early childhood development tax 31 credit available against the individual income tax. The Iowa 32 child and dependent care tax credit is a refundable credit 33 calculated as a percentage of the nonrefundable federal child 34 and dependent care tax credit, depending on the Iowa net income 35 -2- LSB 5738XS (4) 88 jm/jh 2/ 4

S.F. 2407 of the taxpayer. The early childhood development tax credit 1 is a refundable credit equaling 25 percent of the first $1,000 2 which the taxpayer has paid to others for each dependent ages 3 three through five for early childhood development expenses. 4 IOWA CHILD AND DEPENDENT CHILD CARE TAX CREDIT. Currently, 5 there are seven graduated Iowa net income thresholds used to 6 calculate the credit. The bill increases these graduated 7 thresholds, but does not change the percentage of the 8 nonrefundable federal child and dependent care tax credit 9 used to calculate the Iowa child and dependent child care tax 10 credit. 11 Currently, the credit percentages in these seven Iowa 12 net income thresholds range from a high of 75 percent of 13 the federal credit for taxpayers with net income of less 14 than $10,000, to a low of 30 percent of the federal credit 15 for taxpayers with net income of $40,000 or more but less 16 than $45,000. Under the bill, the credit percentages in the 17 thresholds range from a high of 75 percent of the federal 18 credit for taxpayers with a net income of less than $25,000, 19 to a low of 30 percent of the federal credit for taxpayers with 20 net income of $60,000 or more but less than $65,000. 21 The bill also adjusts the future amount of each of the Iowa 22 net income amounts in the seven graduated Iowa net income 23 thresholds by indexing the thresholds to inflation. 24 EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The bill increases 25 the income threshold determining the eligibility of a taxpayer 26 for the early childhood development tax credit. The bill 27 increases the eligibility threshold from a taxpayer earning 28 $45,000 per year to $65,000 per year. By increasing the 29 eligibility threshold, taxpayers earning less than $65,000 are 30 now eligible to take the early childhood development tax credit 31 equaling 25 percent of the first $1,000 which the taxpayer has 32 paid to others for early childhood development expenses for 33 each dependent ages three through five. The bill also adjusts 34 the future amount of the net income threshold by indexing the 35 -3- LSB 5738XS (4) 88 jm/jh 3/ 4

S.F. 2407 threshold to inflation. 1 EFFECTIVE DATE AND APPLICABILITY. The bill takes effect 2 upon enactment and applies retroactively to tax years beginning 3 on or after January 1, 2020. 4 -4- LSB 5738XS (4) 88 jm/jh 4/ 4